The Conservatives have every reason to be grateful for Michael Howard's leadership. In little over 18 months, he has transformed a dispirited and divided party into a disciplined, professional and well-motivated political force.

We have 33 more younger MPs, including the first Tory black MP, Adam Afriyie, Asian barrister Shailesh Vara and highly able women like Justine Greening from Putney.

The general election has transformed the parliamentary landscape. Never again glad confident morn for New Labour. The loss of a further 34 seats would have meant the first hung parliament since 1974. The Commons is set to become the proper forum of political debate with the government held to account. Mr Blair will have to turn up rather more often.

And yet the Tory party has not the slightest reason for complacency. We have climbed the foothills; we are beginning to ascend the slopes, but we are not yet in sight of the summit.

Undoubtedly, it is of great political importance that our share of the vote, at 33 per cent, was only three points behind Labour compared with nine points in 2001 and almost 13 in 1997. But the harsh truth is that that is because Labour's support has sharply fallen while ours has only slightly increased.

We have made good progress in London and the south east but virtually none in the Midlands, in Scotland, in the north or in great cities like Birmingham, Bristol, Manchester, Edinburgh or Liverpool. Indeed, in many of these parts of the country, we are not even the principal opposition to Labour.

So, first of all, we must be ruthlessly honest with ourselves. We have made a serious advance in this election but we have one heck of a way to go. It is not one more heave that we need, but four years of sustained, imaginative and dynamic action both in parliament and in the country.

Second, that work must begin now. While there will be much speculation about the leadership of the party over the next few months, that will be equally true for Labour, where Blair is now likely to depart sooner rather than later. Labour is rattled after the election and the Conservatives must capitalise on this by being an energetic and unrelenting opposition, exposing the failings, the superficiality and lack of drive of this third-term government.

But that will not be enough. We must also have an honest, open and public debate not only about our strengths but about the sort of party we are; about our values and ambitions for the country; about why the nation should not just be reassured by, but positively look forward to the prospect of a Conservative Britain at the next general election.

That cannot be achieved if we only speak to ourselves, to our core supporters. We must reconnect with the millions of people who voted for us until recently, and we must establish a rapport with millions more who have no ideological fixations and who could be attracted to a modern, undogmatic and progressive Toryism.

To achieve that will not just require the right mix of policies. It will need a rhetoric, a body language and a political chemistry that is in accord with the spirit of the times. Britain is not as ideologically divided as it used to be and the public are not impressed by politicians who use the language and style of a previous age.

But most important for the Conservative party is to be clear about its modern identity and how that distinguishes us from our rivals. That identity must always have four main components.

First, we must proclaim our belief in liberty. Our rhetoric may not be the same as that of the left but our belief in the need to protect the freedom of the citizen from overpowerful government goes back to the days of Shaftesbury and Wilberforce. In the modern context, that must mean a total opposition to imprisonment without trial, to the irrelevance of identity cards and to other authoritarian measures.

Second, we must proclaim our belief in smaller government. That means more help for people to provide for themselves and their families. But the Tories also need to spearhead a renaissance in genuine local government by transferring real powers from Whitehall to county councils. It is intolerable that John Prescott should have more power than the elected representatives of the local community to decide how many houses should be built on the green belt in Sussex or Lancashire. It is equally imperative that the autonomy of our universities should be restored and that they should no longer be treated as the creatures of government.

Third, we must unambiguously embrace tax reform as a priority. Conservatives always wish to reduce the burden of taxation and we now have the time and the opportunity to engage the best brains in the land not just to identify unnecessary or wasteful expenditure but also to simplify a tax system that absorbs in administration too much of the revenues that it raises.

Fourth, we are a one-nation party and that means we must make the elimination of deprivation and poverty a prime objective of the next Conservative government. Between 1979 and 1997, we brought unprecedented prosperity to more than 75 per cent of the population by encouraging and liberating the wealth-creating forces of the free-enterprise system. We must now harness these energies to deal with the residual deprivation that is still with us.

One final point needs to be made. New Labour was always an artificial party, created to combine Blair's political skills with a non-performing Labour machine. It is now past its sell-by date. It is the Tories who must now win the battle of ideas. That should be taken forward in the universities, in the think-tanks and the intellectual debates that will help shape the country over the next four years.

The facts of life are as Tory as ever but that will only translate into political power if we ensure that our Conservatism is modern, relevant and in tune with the needs and aspirations of the nation.